Weekly FX Update, 05 Oct 2015

US dollar declined against broad currencies as weak US jobs growth pushed back rate hike expectations, despite comments by FOMC voting members on timing of US first interest rates hike. The US economy created 142,000 jobs in September, higher than the downwardly revised 136,000 in August, but lower than the market expectations for a growth of 201,000. The participation rate also plunged to 62.4%, its lowest reading since October 1977. In addition to the weak headline numbers, wages were flat in September. Expectations for a rate increase fell further after the jobs report was released, despite FOMC officials said that the Fed will raise interest rates later this year. EUR weakened against the greenback on the back of softer economic data and the improving risk sentiment. The headline inflation reading of euro area dipped 0.1% in September, falling below zero for the first time since March – when the European Central Bank (ECB) launched its asset-purchase program, due to the sharp fall in energy prices. This together with the unemployment rate that remained at 11% in August triggered market expectations for a further stimulus from the ECB, which added pressure on the EUR. Expectation for a further easing by ECB and China’s latest move to boost the housing market helped to improve the market sentiment and lowering demand on the safe haven EUR. Japanese yen declined slightly against the US dollar due to the weaker-than-expected data flows. Japan’s industrial output unexpectedly dropped for second month, raising concern that the economy may have fallen back into its second recession. The Tankan large manufacturer’s index came in with a score of 12, down from 15 in the previous quarter, affected by slower growth in China. Big manufacturers also downgraded their profit forecast and predicted a gloomier outlook. Weak data flows resulted in the expectations for a further monetary easing to boost the economy activities in Japan. Asian currencies ended the week on a positive bias against US dollar, except both Thai baht and Singaporean dollar. Thai baht declined 0.4% against US dollar as the country’s exports in August continued to contract for the 8th consecutive month at a faster pace. Top gainers were Korean won, followed by Indian rupee and Taiwanese dollar, as foreign money flowing back in local equities. Ringgit Malaysia strengthened slightly against the US dollar as both MYR 1M NDF and 1-month USD/MYR volatility decrease, the cross SGD/MYR closed lower and the surge in KLCI to close above 1,620 level. Meanwhile, stabilize oil prices which closed higher, with the WTI prices closed above US$45/bbl, also helped to support the Ringgit. Despite volatile nature of Ringgit Malaysia, Prime Minister Najib reaffirmed Bank Negara Malaysia’s (BNM) stance that the country will not peg Ringgit and to impose any form of capital controls. On the macro front, Malaysia manufacturing purchasing manager index (PMI) continued to contract as production and new orders fell.